When a small business enjoys a substantial growth spurt, the owner soon realizes that the only way to keep up with business is to get organized. A formal organizational structure could help the owner deploy and coordinate employees, but the disadvantages might outweigh the benefits -- at least until the company’s growth leaves the owner no choice. By understanding the downsides, an owner may be able to mitigate the disadvantages of a formal organizational structure.

Reduced Flexibility

Flexibility is the first casualty of formal structuring. To ensure that nothing goes undone, an owner must bundle tasks into firm job roles. Employees must stick to these jobs according to a schedule or routine so the owner can coordinate everyone’s efforts. Written rules and procedures make certain that a new employee can quickly assume a job role. Gone are the days when people could shift their efforts to meet sudden challenges. Though organizing reduces adaptability, it makes a company more focused.

Loss of Innovation

Confined to tasks that must be done in a certain way at a certain time, employees don’t have much room for creativity and innovation. In fact, it’s undesirable, since standardizing work promotes efficiency and productivity. This strength becomes a weakness when a company needs to innovate to compete or respond to sudden market changes.

Reduced Information Flow

Before a company erects a formal structure, information flows spontaneously and freely throughout the company. After a small business adopts a structure, employees’ concerns and access to information narrows to their own departments and individual jobs. Disconnected from information, employees lose a sense how their roles affect the company as a whole. They have even less understanding of how other departments affect the company. Cooperation and coordination suffer.

Functional Structure

Usually, small businesses choose the functional structure as their first type of formal organization. Similar jobs become collected into departments, allowing people with the same concerns to easily communicate and share resources. Though efficient, segregating employees according to functional areas, such as marketing and accounting, hinders interdepartmental communication and coordination. Additionally, this structure is the least flexible, besides discouraging innovation. These disadvantages may be acceptable for companies needing maximum efficiency, control, mass production or standardized products.

Team Structure

Companies needing creativity and the ability to quickly react to the competitive environment might be better served with the team structure. This framework unites employees with different skills and knowledge into temporary teams that assume responsibility for a goal or area of company concern. The structure requires that employees are well-trained, given power to make decisions, and excel at team dynamics.

Divisional Structure

The divisional structure is a less drastic shift away from the functional structure. It may work for companies with more than one product line, location or market. To build it, an owner assigns employees to a division dedicated to one product, area or customer type, then subdivides by function. Divisional employees coordinate well, since they’re all working on the same goals. These common goals also increase a division’s adaptability without giving up as much efficiency as the team structure.